(Circulated by authority of
the Attorney-General,
the Honourable Robert McClelland MP)

THIS MEMORANDUM TAKES ACCOUNT OF
AMENDMENTS MADE BY

THE HOUSE OF REPRSENTATIVES

TO THE BILL AS INTRODUCED

INTERNATIONAL ARBITRATION
AMENDMENT BILL 2010

OUTLINE

The
International Arbitration Act 1974

The International Arbitration Act 1974
(‘the Act’) implements Australia’s obligations to
enforce and recognise foreign arbitration agreements and arbitral
awards under the Convention on the Recognition and Enforcement of
Foreign Arbitral Awards done at New York on 10 June 1958
(the New York Convention).

Finally, the Act also implements
Australia’s obligations under the Convention on the
Settlement of Investment Disputes between States and Nationals of
Other States done at Washington on 18 March 1965.

The
International Arbitration Amendment Bill 2010

The International Arbitration Amendment Bill
2010 (‘the Bill’) was developed following a review of
the Act announced by the Attorney-General, the Hon Robert
McClelland MP, on 21 November 2008 (the Review).

The amendments to the Act contained in the
Bill can be divided into four categories: amendments to the
application of the Act and the Model Law; amendments concerning the
interpretation of the Act; amendments to provide additional option
provisions to assist the parties to a dispute; and miscellaneous
amendments to improve the operation of the Act.

Application
of the Act and the Model Law

In 2006, UNCITRAL adopted the first set of
amendments to the Model Law since it was originally adopted in
1985. With one exception relating to ex parte orders,
the Bill will apply these amendments to international commercial
arbitration in Australia.

Section 21 of the Act allows the parties to an
arbitration agreement to resolve their dispute under an arbitral
law other than the Model Law (as given the force of law by the
Act). For example, the parties could choose to resolve their
dispute under State or Territory legislation. This creates
significant legal difficulties and confusion concerning the
interaction of the different laws. The Bill repeals section
21, removing the ability of the parties to an arbitration agreement
to nominate an alternative arbitral law. The Bill also amends
the Act to expressly provide that the Model Law covers the field
with respect to international commercial arbitration. In
doing so, the Bill retains jurisdiction for State and Territory
Supreme Courts and the Federal Court of Australia.

Interpretation of the Act

The Bill includes new provisions that are
intended to confine the circumstances in which the courts can set
aside an award made under the Model Law or refuse to enforce
foreign awards under the New York Convention and the Model Law.

The Bill amends the Act to provide guidance to
the courts when exercising powers and functions under the Act or
the Model Law, exercising a power or function under an arbitration
agreement or award, interpreting the Act or the Model Law or
interpreting an arbitration agreement or award. For
example, the Bill requires a court to have regard to the objects of
the Act and to the fact that arbitration is an ‘efficient,
impartial, enforceable and timely’ method of dispute
resolution.

The Bill inserts an objects clause into the
Act which emphasises the importance of international arbitration in
facilitating international trade and commerce and is intended to
guide the interpretation of the Act.

Optional
Provisions

In addition to giving force to the Model Law
as the primary arbitral law governing the conduct of international
commercial arbitration in Australia, the Act also provides a range
of provisions that can be used to help resolve disputes fairly and
efficiently. These provisions are optional in that they must either
be expressly adopted by the parties or they apply by default but
can be ousted by the parties.

These provisions address issues such as the
consolidation of arbitral proceedings, the awarding of interest and
costs.

The Bill includes a number of additional
optional provisions that will be made available to the parties to
an arbitration agreement. These provisions cover issues such
as obtaining evidence to support an arbitration, security for
costs, the disclosure of confidential information and the death of
a party. The Bill also clarifies which of the optional
provisions apply by default and which must be expressly
adopted.

Other
Amendments

The Bill includes a range of other measures
directed at improving the general operation of the Act. These
include providing a more expansive definition of what constitutes
an agreement in writing for the purposes of the New York Convention
and provisions to discourage adjournments during enforcement
proceedings and to clarify the operation of the Model Law with
respect to challenging the appointment of an arbitrator.

FINANCIAL IMPACT STATEMENT

The proposed amendments to the Act will not
have any budgetary implications for the Australian Government.

NOTES ON CLAUSES

Clause 1:
Short Title

1.
This clause is a formal provision specifying that, once enacted,
the short title of the Bill will be the International
Arbitration Amendment Act 2010 .

Clause 2:
Commencement

Clauses
1 to 3 of the Bill will commence upon Royal Assent. The
provisions of Schedule 1 are also expressed to commence upon Royal
Assent with the exception of items 6, 8, 13 and 25. The
commencement of these items is expressed to be contingent on the
commencement of the Federal Justice System Amendment (Efficiency
Measures) Act 2009. As that Act commenced on
7 December 2009, once the Bill comes into force, items 6
and 25 will be taken to have commenced on 7 December 2009.
Items 8 and 13 commence on Royal Assent.

Clause 3: Schedules

2.
This clause provides that each Act that is specified in a Schedule
is amended or repealed as set out in the applicable items in the
Schedule and that any other item in a Schedule has effect according
to its terms. The Bill contains only one schedule -
Schedule 1.

Schedule 1 - Encouraging International Arbitration

Part
1 - Amendments

International Arbitration Act 1974

Amendments to Part I of the Act

3.
Item 1 amends Part I of the A ct which sets out preliminary
matters that apply throughout the legislation.

4.
This item amends Part 1 of the Act by inserting a new subsection 2D
setting out the objects of the Act.

5.
Arbitration facilitates international trade and commerce, including
international investment, by providing the parties to
cross-border transactions with a widely understood and
internationally enforceable means of resolving their
disputes. Accordingly, the primary purpose of the Act is to
facilitate international trade and commerce by encouraging the use
of arbitration as a method of resolving disputes. The Act
does this by facilitating the use of arbitration agreements to
manage disputes - particularly by giving force to the
Model Law - and by facilitating the enforcement and
recognition of foreign arbitration agreements and awards by giving
effect to the New York Convention.

6.
The Act also gives effect to Australia’s obligations under
the Convention on the Settlement of Investment Disputes between
States and Nationals of Other States which is also reflected in
section 2D.

7.
Item 26 amends the Act by inserting a new section 39 which provides
that, amongst other things, the court must have regard to the
objects of the Act when performing functions or exercising powers
under the Act or the Model Law, when performing functions or
exercising powers under an agreement or award to which the Act
applies, interpreting the Act or the Model Law or interpreting an
agreement or award to which the Act applies.

8. See also Item 26.

Amendments to Part II of the Act

9.
The following items amend Part II of the Act which gives effect to
Australia’s obligations under the New York Convention to
enforce and recognise foreign arbitration agreements and arbitral
awards. Australia became a party to the New York Convention
on 24 June 1975.

12.
Section 7 of the Act gives effect to Australia’s obligations
under Article II of the New York Convention to recognize and give
effect to foreign arbitration agreements. Article II of the
New York Convention provides:

1. Each Contracting State shall
recognize an agreement in writing under which the parties undertake
to submit to arbitration all or any differences which have arisen
or which may arise between them in respect of a defined legal
relationship, whether contractual or not, concerning a subject
matter capable of settlement by arbitration.

2. The term “agreement in
writing” shall include an arbitral clause in a contract or an
arbitration agreement, signed by the parties or contained in an
exchange of letters or telegrams.

3. The court of a Contracting State,
when seized of an action in a matter in respect of which the
parties have made an agreement within the meaning of this article,
shall, at the request of one of the parties, refer the parties to
arbitration, unless it finds that the said agreement is null and
void, inoperative or incapable of being performed.

13.
Subsection 3(1) of the Act provides that the phrase arbitration
agreement means ‘an agreement in writing of the kind
referred to in sub-article 1 of Article II of the
Convention’. Section 3(1) also provides that
agreement in writing ‘has the same meaning as in the
Convention’. While these definitions are of particular
relevance to section 7 of the Act they also have application to
other provisions in Part II of the Act including section 8 which
gives effect to Articles III to VI of the New York Convention
concerning the recognition and enforcement of foreign arbitral
awards.

14.
While the meaning of agreement in writing in the New York
Convention is inclusive, there has been growing concern amongst
Contracting Parties to the Convention that Article II(2) is being
construed too narrowly by legislators and domestic courts.
This concern has arisen primarily in response to the growing
reliance on electronic communications in international trade and
commerce. Overly narrow interpretations of the writing
requirement have the potential to undermine the ongoing
effectiveness of the Convention.

15.
This issue was considered by UNCITRAL at the same time as it was
adopting the 2006 amendments to the Model Law (see Item 11).
On 7 July 2006, UNCITRAL adopted a recommendation
regarding the interpretation of the Convention encouraging
Contracting Parties to apply Article II(2) ‘recognizing that
the circumstances described therein are not
exhaustive’. [1]
The recommendation was adopted in
recognition of the wide use of electronic commerce and the
‘need to promote the recognition and enforcement of arbitral
awards’. [2]

16.
This item inserts a new subsection 3(4) into the Act which
clarifies that agreement in writing is to be given an
expansive interpretation that takes into account modern means of
communication. The provision is based on the definition of
agreement in writing contained in Option 1 of Article 7 of the
Model Law as amended in 2006 (see Item 11 and Item 12).

17.
The new provision builds on the existing meaning of agreement in
writing in the Convention and the Act by clarifying that an
agreement will be in writing if ‘its content is recorded in
any form’ regardless of whether the agreement or contract to
which it related ‘has been concluded orally, by conduct, or
by other means’.

18.
Further, an agreement is in writing if ‘it is contained in an
electronic communication and the information in that communication
is accessible so as to be usable for subsequent
reference’. A definition of electronic
communication is inserted into subsection 3(1) of the Act by
Item 3 which provides that ‘electronic communication means
any communication made by means of data messages’. A
definition of data message is inserted into subsection 3(1)
by Item 2. This definition applies to information
‘generated, sent, received or stored by electronic, magnetic,
optical or similar means’. While the definition
includes a number of examples - for example email - it
is not intended to be confined to these examples and should be
interpreted to take account of new means of communication as they
emerge.

19.
New subsection 3(4) of the Act also clarifies that an
agreement will be in writing if it is contained ‘in an
exchange of statements of claim and defence in which the existence
of the agreement is alleged by one party and not denied by the
other’. This application of Article II(2) has long been
accepted internationally and is reflected in the 1996 iteration of
the Model Law. It is intended to facilitate the operation of
Article II of the Convention by encouraging courts to refer matters
to arbitration where this has previously been agreed by the
parties.

20.
This item also inserts a new subsection 3(5) which clarifies
that ‘a reference in a contract to any document containing an
arbitration clause is an arbitration agreement, provided that the
reference is such as to make the clause part of the
contract’.

21.
By adopting the approach taken in Option 1 of Article 7 of the
Model Law, this item ensures consistency between the application of
the enforcement and recognition provisions in the New York
Convention and those in the Model Law as given force under the
Act.

22.
Item 2, Item 3 and Item 4 apply in relation to agreements entered
into on or after the commencement of these items (the day of Royal
Assent) - see Item 28.

24.
Subsection 8(2) of the Act provides that ‘a foreign award may
be enforced in a court of a State or Territory as if the award had
been made in that State or Territory in accordance with the law of
that State or Territory’.

25.
Section 8(2) is typically interpreted to mean that an application
for enforcement of a foreign award must be made under State or
Territory arbitration legislation - for example, section 33
of the Commercial Arbitration Act 1984 (NSW) - rather
than directly under the Act. A concern raised during the
Review of the Act is that the requirement to enforce an award
through the law of a State and Territory might be seen to provide a
Court with a basis to decline to enforce the award on any ground
contained in that law in addition to those set out in the Act.

26.
This item amends subsection 8(2) to provide that a foreign award
may be enforced by a State or Territory court as if the award were
a judgment or order of that court, removing references to State and
Territory law. In conjunction with Item 7, this amendment is
intended to remove any application of the laws of the States and
Territories in enforcing a foreign award.

27.
Item 24 makes a similar amendment to subsection 35(2) of the Act
which applies to the recognition of awards under the Convention on
the Settlement of Investment Disputes between States and Nationals
of Other States.

28.
The amendment in this item applies in relation to proceedings to
enforce a foreign award brought on or after the item’s
commencement (the day of Royal Assent) - see Item 29.

30.
The Federal Justice System Amendment (Efficiency Measures) Act
conferred jurisdiction on the Federal Court of Australia for the
purposes of section 8 of the Act by inserting subsection
8(3). To ensure consistent phraseology with the amendments
contained in Item 5, this item will repeal subsection 8(3) and
substitute a new provision to the same effect.

31.
Item 25 makes a similar amendment to subsection 35(4) of the Act
which applies to the recognition of awards under the Convention on
the Settlement of Investment Disputes between States and Nationals
of Other States.

32.
The amendment in this item applies in relation to proceedings to
enforce a foreign award brought on or after the item’s
commencement - see Item 29.

34.
One of the key benefits of using arbitration to resolve disputes is
the finality and enforceability of the resulting arbitral
award. This is of particular importance with respect to
international commercial arbitration.

35.
Article V of the New York Convention sets out the grounds on which
recognition and enforcement of a foreign arbitral award may be
refused by the competent authority of a Contracting
Party. Article V reflects the principle that arbitral awards
should be enforced unless the award conflicts with fundamental
principles of law and justice in the enforcing state.

36.
The grounds of refusal set out in Article V are divided into two
categories. The first category consists of matters that go to
the circumstances in which the award was made and whether the award
is, in fact, binding on the parties. For example, enforcement
of an award may be refused where one of the parties was under some
kind of incapacity or was not given notice of the arbitral
proceedings or was otherwise unable to present their case.
The second category goes to the nature of the award itself. A
court may refuse to enforce an award that relates to a subject
matter that is not capable of settlement under the law of that
country. Further, enforcement may be refused if ‘the
award would be contrary to the public policy of that
country’.

37.
The grounds set out in Article V of the New York Convention are
intended to be exhaustive. In other words, enforcement of an
award may only be refused if one of the grounds in Article V
is made out.

38.
Subsections 8(5) and 8(7) set out the grounds on which a court can
refuse to enforce a foreign arbitral award under the Act.
These grounds mirror those in Article V of the New York
Convention.

39.
During the Review of the Act, concern was expressed that courts do
not always treat the grounds for refusal in subsection 8(5) and
8(7) as exhaustive. For example, in Resort Condominiums
Inc v Bolwell and Another [1995] 1 Qd R 406, the Supreme Court
of Queensland found that the court retains a discretion to refuse
to enforce a foreign arbitral award even if none of the grounds in
section 8 of the Act are made out. Such an approach is
inconsistent with the intention of the Convention.

40.
Accordingly, this item amends section 8 to insert a new subsection
8(3A) that states that a court may only refuse to enforce a foreign
award in the circumstances mentioned in subsections 8(5) and
8(7).

41.
The amendment in this item applies in relation to proceedings to
enforce a foreign award brought on or after the commencement of the
item (the day of Royal Assent) - see Item 29.

42.
Consideration was given to making a similar amendment to Part III
of the Act with respect to the setting aside of an award under
Article 34 of the Model Law or the recognition and enforcement of
awards under Articles 35 and 36. These grounds mirror those
in the New York Convention. However, Article 34(2) of the
Model Law states that an arbitral award may be set aside
‘only if’ one of the grounds in the Article is made
out. Similarly, Article 36(1) provides that recognition and
enforcement of an award ‘may be refused only’ if one of
the grounds in that Article is made out. Accordingly, it is
clear on the face of the Model Law that the grounds in Articles 34
and 36 for setting aside or refusing to enforce an award are
intended to be exhaustive and consequently such an amendment would
be superfluous.

47.
Under subsection 8(7) of the Act, a court may refuse to enforce an
award where to do so would be contrary to public policy. This
ground reflects paragraph V(2)(b) of the New York
Convention.

48.
A similar ground for setting aside or refusing to enforce an award
is found in Article 34 and Article 36 of the Model Law.
Section 19 of the Act clarifies the meaning of public policy under
these articles of the Model Law. Section 19 of the Act
states:

Without limiting the generality of
subparagraphs 34(2)(b)(ii) and 36(1)(b)(ii) of the Model Law, it is
hereby declared, for the avoidance of doubt, that, for the purposes
of those subparagraphs, an award is in conflict with the public
policy of Australia if:

(a) the making of the award was induced or
affected by fraud or corruption; or

(b) a breach of the rules of natural justice
occurred in connection with the making of the award.

49.
At the time this provision was enacted - through the
International Arbitration Amendment Act 1989
- it was decided not to make an equivalent amendment with
respect to the public policy ground of refusal in section 8 even
though Articles 34 and 36 are based on Article V of the New
York Convention. The Explanatory Memorandum to the 1989
legislation states that this decision was made ‘so as to
avoid any possible inference that the term ‘public
policy’ which is referred to in the New York Convention does
not contain those elements’. Despite this
explanation, the application of section 19 has the potential to
lead to the misinterpretation of the public policy ground in
section 8. Accordingly, this item replicates the terms of
section 19 and applies them to the public policy ground in
subsection 8(7) of the Act.

50.
The amendment in this item applies in relation to proceedings to
enforce a foreign award brought on or after the item’s
commencement (the day of Royal Assent) - see Item 29.

52.
Subsection 8(8) of the Act provides a mechanism for adjourning
enforcement proceedings where the court is satisfied that an
application for the setting aside or suspension of an arbitral
award has been made in the country under the law of which the award
was made. The provision gives effect to Article VI of the New
York Convention.

53.
The purpose behind Article VI of the Convention and hence
subsection 8(8) is to ensure that enforcement of an award does not
occur where that award, in time, may be unenforceable.

54.
The application of this provision has the potential to be used to
frustrate the enforcement of a foreign award in Australia where a
party opposing enforcement commences action in the country where
the award was made on spurious
grounds or with the sole intention of delaying
enforcement . Further, subsection 8(8) of the Act does not
provide an adequate mechanism for a party seeking enforcement of an
award to have an adjournment lifted where the proceedings in the
other country have been resolved or have not been prosecuted in
good faith and with due dispatch.

55.
This item amends section 8 of the Act to insert new subsections
8(9) and 8(10). These provisions allow the court to order
proceedings that have been adjourned under subsection 8(8) to
be resumed where one of four circumstances occurs:

(a) the
application for setting aside or suspension of the award in the
foreign country is not being pursued in good faith

(b) the application
for setting aside or suspension of the award in the foreign country
is not being pursued with reasonable diligence

(c) the
application for setting aside or suspension of the award in the
foreign country has been withdrawn or dismissed, or

(d) the continued
adjournment of the proceedings is, for any reason, not
justified.

56.
In addition, the court will be able to make orders for costs
against the person who made the application for setting aside or
suspension of the award in the foreign country and any other orders
the court thinks appropriate in the circumstances.

57.
The amendment made by this item applies whether the proceedings are
adjourned under subsection 8(8) before or after the
commencement of this item (the day of Royal Assent) - see
Item 30.

58. See also Item 30.

Amendments to Part III of the Act

59.
The following items amend Part III of the Act which gives the force
of law to the Model Law as the primary arbitral law governing the
conduct of international commercial arbitrations in
Australia. Part III also provides a range of additional,
optional, provisions that can be used by the parties to an
arbitration agreement should a dispute arise between them.

60.
Section 15 provides for the interpretation of Part III of the
Act. This item amends this section by repealing subsection
15(1) which sets out the meaning of Model Law and
substituting a new subsection. This new provision inserts
definitions for confidential information , disclose
and Model Law . The meanings of confidential
information and disclose are discussed at Item 18.
The
definition of Model Law is discussed below.

61.
Subsection 16(1) of the Act provides that, subject to the other
provisions of Part II,
‘the
Model Law has the force of law in Australia’. The Model
Law was adopted by UNCITRAL on 21 June 1985.
Subsection 15(1) provides that Model Law means:

the UNCITRAL Model Law on International
Commercial Arbitration adopted by the United Nations Commission on
International Trade Law on 21 June 1985, the English text of which
is set out in Schedule 2.

Schedule 2 to the Act duly replicates the
Model Law as adopted by UNCITRAL in 1985.

62.
On 7 July 2006, UNCITRAL adopted amendments to the Model
Law. These amendments:

·
insert a new Article 2A, which is intended to promote uniform
interpretation of the Model Law

·
amend the definition of ‘arbitration agreement’ in
Article 7 to give parties the option of adopting a less
prescriptive definition

·
adopt more extensive provisions on ‘interim measures and
preliminary orders’, and

·
amend Article 35(2) to remove authentication requirements when
seeking enforcement of an award through a court and to rationalise
the requirements for translating awards.

Each of
these amendments to the Model Law and the proposed approach to
their implementation is dealt with in further detail below.

63.
In conjunction with subsection 16(1) of the Act, and subject to the
exceptions discussed below, this item will give the force of law to
the Model Law including the amendments made
in 2006.
Schedule 2 of the Act has been updated to reflect the amendments to
the Model Law.

64.
Article 2A of the Model Law, as inserted in 2006, ‘is
designed to facilitate interpretation by reference to
internationally accepted principles and is aimed at promoting a
uniform understanding of the Model Law’. The Article provides:

(1) In the interpretation of this Law,
regard is to be had to its international origin and to the need to
promote uniformity in its application and the observance of good
faith.

(2) Questions concerning matters
governed by this Law which are not expressly settled in it are to
be settled in conformity with the general principles on which this
Law is based.

65.
There was widespread support expressed during the Review of the Act
for incorporating Article 2A through the Act. In order to
ensure that Australia is an attractive venue for the conduct of
international commercial arbitration, it is important that the
Model Law is interpreted in a way that is consistent with
approaches taken overseas. Novel or perverse interpretations
by Australian courts have the potential to undermine confidence in
Australia as a venue for conducting arbitration.

Definition of Arbitration Agreement

66.
Prior to its amendment in 2006, Article 7 of the Model Law set out
the meaning of arbitration agreement and the formal
requirements for such agreements. A key requirement of this
Article was that an arbitration agreement must be in writing.
The Article then set out a range of ways in which this requirement
could be satisfied - for example an agreement is in writing
if it is contained in an ‘exchange of letters, telex,
telegrams or other means of telecommunications which provide for a
record of the agreement’. It was the intention of the
drafters of the Model Law that Article 7 should be consistent with
the writing requirement in Article II(2) of the New York Convention
(see Item 4).

67.
The 2006 amendments to the Model Law offer States alternative
versions of Article 7 referred to as ‘options’.
States must choose which version of Article 7 they wish to
incorporate into their laws. Option I is in substantially the
same terms as the 1985 iteration of Article 7, although there are
two significant changes. First, Option I clarifies that an
agreement may be concluded orally, through conduct or other means,
provided that its content is recorded in some form. Secondly,
the provision reflects the use of electronic communications to
conclude commercial arrangements. Option II is less
prescriptive than both the original iteration of Article 7 and
Option I. It includes a definition of ‘arbitration
agreement’ but excludes any formal requirements, including
the requirement that an agreement be in writing.

68.
During consultations conducted as part of the Review of the Act,
there was widespread support for adopting Option I. This
option is consistent with the approach taken originally in the
Model Law but has been modernised to reflect contemporary
arbitration practice. Option II, on the other hand, would involve a
substantial departure from current practice in Australia.
Further,
Option I can be adapted to the interpretation of the writing
requirement in the New York Convention (see Item 4).
Accordingly, Item 12 amends section 16 of the Act to provide that
‘arbitration agreement’ has the same meaning as in
Option I for Article 7 of the amended
Model Law.

Interim measures and preliminary orders

69.
Prior to 2006, Article 17 of the Model Law allowed an arbitral
tribunal to ‘order any party to take such interim measure of
protection as the arbitral tribunal may consider necessary in
respect of the subject-matter of the dispute’.
The primary purpose of the provision was to ensure that assets are
preserved pending the completion of the arbitration process.

70.
Article 17 was in the most basic terms and, significantly, did not
provide for enforcement through a court, rendering many interim
measures of little value. In Australia, this was overcome in
part through section 23 of the Act which allows the parties to
agree that such measures will be enforceable as if they were an
award.

71.
The 2006 amendments to the Model Law introduce a significantly more
sophisticated regime for making and enforcing interim
measures. These measures bring arbitration into line with the
types of protection that could be obtained from a court during
litigation. Significantly, the amendments also provide for
interim measures to be made by a court and for the enforcement of
such measures.

72.
In addition to the new provisions on interim measures, new Articles
17B and 17C of the Model Law establish a regime for preliminary
orders. These are the equivalent of ex parte orders
made by a court in circumstances where there is a perceived risk
that a party will attempt to frustrate interim measures.
While this proposal received some support from stakeholders, it was
extremely controversial when considered by UNCITRAL and was opposed
by key stakeholders in Australia during the Review.

73.
The primary objection to the provisions allowing for preliminary
measures is that such measures are inconsistent with the consensual
underpinning of arbitration. Accordingly, Item 14 amends the
Act to provide that, despite Article 17B of the Model Law,
preliminary orders are not available under the Act or the Model
Law.

74.
As a consequential amendment, Item 18 repeals current section 23 of
the Act which is no longer required as the recognition and
enforcement of interim measures is now dealt with in
Articles 17H and 17I of the Model Law.

75.
The 2006 amendments make a consequential amendment to Article 1(2)
of the Model Law. In its original iteration, the Model Law
provided that: ‘the provisions of this Law, except articles
8, 9, 35 and 36, apply only if the place of arbitration is in the
territory of this State’. To ensure the effective
operation of interim measures and (for those States adopting them)
preliminary orders, it is necessary to include Articles 17H to 17J
to this list. These provisions relate to the recognition and
enforcement of interim measures and, accordingly, need to apply to
arbitrations conducted in a foreign state. This amendment is
adopted accordingly, subject to the limitation set out in Item
14.

Authentication and translation requirements

76.
The 2006 amendments to Article 35 of the Model Law are intended to
reduce formality when seeking the recognition and enforcement of an
award. They are relatively minor changes and received broad
support from stakeholders.

78.
As noted under Item 11, the 2006 amendments to the Model Law
provide two alternative provisions for defining arbitration
agreement for the purposes of the Model Law. For the
reasons set out under that item, the Bill amends the Act to insert
a new definition into subsection 16(2) which provides that
arbitration agreement has the meaning set out in Option 1 of
Article 7 of the Model Law.

79.
Item 4 clarifies the meaning of agreement in writing under
Part II of the Act for the purposes of implementing the New York
Convention consistently with Option 1 of Article 7 of the Model
Law.

81.
Item 13 replaces the existing section 18 with a new provision which
allows a court or an authority to be prescribed as a competent
court or authority to perform various functions set out in the
Model Law relating to the failure to appoint arbitrators.

82.
A number of other functions under the Model Law are reserved to the
Federal Court, as well as State and Territory Supreme Courts.
These functions concern challenges to arbitrators
( Article 13(3)), failure or impossibility to
act (Article 14), challenges to jurisdiction (Article 16(3)) and
appeals against awards (Article 34(2)).

Item 14 After
section 18

83.
Article 12 of the Model Law sets out the grounds on which the
appointment of an arbitrator appointed in accordance with
Article 11 may be challenged. Under Article 13, the
parties are free to determine the procedure for challenging an
arbitrator, subject only to the requirement in Article 13(3)
that where a challenge has failed the party must be able to have
recourse to a court to determine the matter.

84.
The parties have a wide degree of discretion in choosing
arbitrators to resolve their dispute. Article 11 of the Model
Law allows them to determine the appointment procedure. Where
no procedure is in place, Article 11 provides a default mechanism
with ultimate recourse to a court where agreement cannot be
reached.

85.
Article 12(1) places an obligation on arbitrators to disclose
‘any circumstances likely to give rise to justifiable doubts
as to his impartiality or independence’. This
obligation attaches from the moment they are approached about an
appointment as an arbitrator and continues throughout their
appointment. Article 12(2) provides that an arbitrator may be
challenged ‘only if circumstances exist that give rise to
justifiable doubts as to his impartiality or independence, or if he
does not possess qualifications agreed to by the
parties’.

86.
In Australia the test for bias that is applied to arbitrators is
the same as that applied to judges. The test is whether a
fair minded lay observer might reasonably apprehend that the
arbitrator might not bring an impartial mind to the resolution of
the dispute (see for example ICT Pty Ltd v Sea Containers
Ltd [2002] NSWSC 77).

87.
Equating arbitrators with judges is not consistent with the
principles underpinning arbitration. While there is no doubt
that an arbitrator should be impartial, arbitrators will be
selected by the parties in some instances because of their specific
knowledge of an industry or particular arrangements. More
typically an arbitrator will be a senior member of an international
law firm, barrister, expert in a particular field or an
academic. Accordingly, it is appropriate to apply a standard
different than that for judges to such persons.

88.
One approach suggested during consultations for the Review was to
adopt the approach taken to bias in the United Kingdom. In
R v Gough [1993] AC 646, the House of Lords applied the
following test for bias:

having ascertained the relevant circumstances,
the court should ask itself whether, having regard to those
circumstances, there was a real danger of bias on the part
of the relevant member of the tribunal in question, in the sense
that he might unfairly regard (or have unfairly regarded) with
favour, or disfavour, the case of a party to the issue under
consideration by him… [3]
[emphasis added]

89.
In his leading judgment, Lord Goff of Chieveley states expressly
that this approach should apply to arbitrators, although this was
not at issue in the decision.

90.
This item inserts a new section 18A into the Act to provide that
the test for whether there are justifiable doubts as to the
impartiality or independence of an arbitrator is the real danger of
bias test set out in R v Gough .

91.
Section 18A will apply in relation to an approach to an arbitrator
on or after the commencement of the item and to any challenge to an
arbitrator made on or after the commencement of the item (the day
of Royal Assent) - Item 31.

92.
As discussed under Item 11, the 2006 amendments to the Model Law
make provision for preliminary orders (Article 17B). For the
reasons given earlier, this provision will not be given effect
under the Act. This item inserts a new section 18B into the
Act which provides that despite Article 17B of the Model Law, no
party to an arbitration agreement may make an application for a
preliminary order and no arbitral tribunal may grant such an
order.

93.
Section 18B will apply from the commencement of this item (the day
of Royal Assent) - Item 31.

94.
Article 18 of the Model Law provides that ‘the parties shall
be treated with equality and each party shall be given a full
opportunity of presenting his case’.

95.
One of the key purposes of arbitration is to provide an effective
alternative to judicial consideration. To ensure that this is
the case, tribunals need a wide degree of discretion to manage
proceedings and even truncate them where this would be in the
interests of the parties by achieving a speedy resolution of their
dispute. The requirement in Article 18 that parties be given
a ‘full opportunity’ to present their case poses a
potential impediment to the effective management of the proceedings
by the arbitral tribunal.

96.
This item will also insert a new section 18C into the Act that
provides that if a party has been given a ‘reasonable
opportunity’ to present their case then this would satisfy
the requirement in Article 18 of the Model Law that they be
given a ‘full opportunity’ to present their case.
This
section is intended to give arbitral tribunals a wider degree of
flexibility in controlling arbitral proceedings without removing
requirements for the parties to be treated with equality and have
an appropriate opportunity to make out their case.

97.
The new Section is consistent with approaches taken in key
jurisdictions overseas, including: Mauritius, New Zealand,
Singapore and the United Kingdom. Hong Kong and Malaysia have
also adopted substantially similar approaches.

99.
As discussed under Item 9, one of the grounds under which a court
may refuse to enforce or recognise a foreign arbitral award under
the New York Convention and the Model Law (or set aside an award
under Article 34 of the Model Law) is that to do so would be
contrary to the public policy of the country in which enforcement
is sought. Section 19 of the Act is an interpretative
provision that clarifies that for the purposes of Articles 34 and
36 of the Model Law, an award is in conflict with the public policy
of Australia if (a) the making of the award was induced or affected
by fraud or corruption or (b) a breach of the rules of natural
justice occurred in connection with the making of the award.

100. This
item would repeal section 19 and re-state it with two small
but significant changes.

101.
First, the provision has been altered to take account of the new
regime for interim measures in the Model Law. As discussed
under Item 11, the 2006 amendments to the Model Law introduce a
more sophisticated regime for interim measures. Article 17H
of the Model Law provides for the recognition and enforcement of
interim measures to ensure that the purpose of any such measure is
not frustrated by the international aspect of the dispute.

102.
Article 17H provides that subject to Article 17I, an interim
measure must be enforced upon application to a court irrespective
of the country in which the measure was issued. Article 17I
sets out the grounds on which a court may refuse to recognise and
enforce an interim measure. Amongst other matters, this
Article incorporates the grounds of refusal that relate to the
recognition and enforcement of awards in Article 36 which, in turn,
reflect the grounds of refusal in Article V of the New York
Convention.

103.
Accordingly, it is necessary to apply section 19 to the recognition
and enforcement of interim measures.

104.
Secondly, this item also makes a minor technical change to section
19 as currently drafted to include the words ‘or is contrary
to’ after the words ‘conflict with’. As
already noted, this is an interpretive provision that applies to
the public policy ground for setting aside an arbitral award or for
refusing to recognise and enforce such an award under Articles 34
and 36 of the Model Law.

105. The
drafting of the public policy ground varies slightly as between
Articles 34 and 36. Article 34 provides that a court
may set aside an award if the award ‘is in conflict
with’ public policy. By way of contrast, Article 36
allows a court to refuse to recognise or enforce an award where it
finds that to do so ‘would be contrary to’ public
policy. This amendment ensures that section 19 reflects both
constructions.

107.
Section 21 of the Act currently provides that the parties to an
arbitration agreement may agree that any dispute that arises
between them may be settled ‘otherwise than in accordance
with the Model Law’. In such cases ‘the Model Law
does not apply in relation to the settlement of that
dispute’.

108. The
provision allows the parties to substitute an alternative law under
which their dispute will be resolved. For example, they could
choose to resolve their dispute under the Commercial Arbitration
Act (NSW) or the law of a foreign country.

109. The
Model Law gives the parties to an arbitration a wide degree of
control over how their dispute is resolved. In particular,
Article 19 provides that the parties are free to agree on the
procedure to be followed by the arbitral tribunal in the conduct of
the proceedings.
Arbitration
rules that can be used under Article 19 have been developed by a
number of international organisations, including UNCITRAL and the
International Chamber of Commerce and Australian institutions such
as the Australian Centre for International Commercial
Arbitration.

110. In
addition to Article 19, Article 28 of the Model Law provides
that ‘the arbitral tribunal shall decide the dispute in
accordance with such rules of law as are chosen by the parties as
applicable to the substance of the dispute’. For
example, in an arbitration between a party from Australia and a
party from New Zealand, the parties may select the law of a third
country as the applicable law to the dispute.

111. It
is important to distinguish between the arbitral law under which a
dispute is resolved and the substantive law which is applied to the
particular facts of the matter in question. Article 28
contemplates party choice as to the latter whereas section 21 of
the Act provides for party choice as to the former. Section
21 allows the parties to exclude all the provisions of the Model
Law including those that concern setting aside of awards and the
recognition and enforcement of awards (Articles 34 to 36).

112. The
operation of section 21 causes considerable practical and
interpretive problems. Firstly,
section 21 allows the parties to ‘opt-out’ of
using the Model Law but not the Act.
Hence other provisions of the
Act may continue to apply, even though these provisions are
underpinned by the Model Law. Where an alternative law has
been nominated - for example the law of Singapore - the
provisions of the Act may conflict with those of the law
nominated. Secondly, it is not necessary for the parties to
nominate an alternative law under which their dispute is to be
resolved. Unless the parties nominate another law under which
the arbitration is to occur, it is not clear what law would
apply. While there is an argument that State or Territory law
would apply to an arbitration being conducted in Australia, this is
not straightforward. Thirdly, even where a law is nominated,
it will not always be clear that a court will have any power with
respect to the arbitration. For example, simply nominating
the Commercial Arbitration Act (NSW) will not necessarily give a
court in NSW any jurisdiction over the arbitration proceedings
should the need arise. Finally, should the law of a foreign
country be nominated and the arbitration is conducted in Australia
it is doubtful that there would be any court which could exercise
jurisdiction if required and the agreement may be unenforceable
both in Australia and overseas.

113. A
further problem has arisen in the judicial application of section
21 of the Act. For example, in Eisenwerk v
Australian Granites Ltd [2001] 1 Qld R 461, the Queensland
Court of Appeal held that by adopting the International Chamber of
Commerce Rules, the parties had opted out of the Model Law.
This interpretation is unsatisfactory because parties nominating
either the International Chamber of Commerce Rules or the
Australian Centre for International Commercial Arbitration Rules
(which are both procedural rules) would then be taken to have opted
out of the Model Law in its entirety and be unable to pursue
certain avenues of relief provided for in the Model Law.
As already noted,
Article 19 of the Model Law expressly contemplates the parties
determining their rules of procedure. The rationale for
allowing the parties to choose their own procedural rules is that
they may tailor the rules to suit their specific wishes. This
should not amount to ousting the Model Law completely. For
example, the Model Law accords the parties considerable freedom to
tailor the procedural rules to suit their particular
circumstances. However, there are fundamental requirements
which may not be ousted, such as the requirement that the parties
be treated with equality and that the rules provide overall
fairness and justice.

114.
While it is appropriate to give parties the flexibility to
determine the procedures they want and the substantive law that is
applicable to the dispute, allowing parties to oust the arbitral
law creates significant difficulties that cannot be easily remedied
without complex litigation. Accordingly, this item repeals
section 21. Consequently, while the parties will continue to
have freedom to choose both the procedures and applicable
substantive law, they will not be free to oust the Model Law as the
applicable arbitral law.

115.
Section 21 raises a broader question about the
‘exclusivity’ of the International Arbitration Act in
governing international commercial arbitration in Australia.
The legislative history of the Act suggests that it was
Parliament’s intention that the Act ‘cover the
field’ for international commercial arbitration and that
State and Territory commercial arbitration acts would not apply
(subject to the choice of the parties in accordance with section
21). Part III of the Act which implements the Model Law was
inserted in the Act by the International Arbitration Amendment
Act 1989 . When originally introduced, this legislation
would have preserved State and Territory legislation to the extent
that it mirrored the Commonwealth Act. However, the relevant
provision (proposed section 29) was removed by way of Government
amendment. The explanatory memorandum for this amendment
states:

The deletion of proposed s.29 will ensure that
a single Australian (Commonwealth) law will govern all
international commercial arbitrations conducted in Australia,
unless the parties themselves choose otherwise.

116.
There have been a number of decisions in Australian courts that
have undermined the exclusive application of the Act.
Arguably the most far reaching example is the decision of
Giles CJ in American Diagnostica
Inc v Gradipore Limited (1998) 44 NSWLR 312 which held in
effect that international commercial arbitration in Australia could
continue to be regulated by State or Territory legislation.

117.
There was strong support from stakeholders for making the Act the
exclusive law governing international commercial arbitration in
Australia. Addressing section 21 of the Act more broadly, was
proposed in a number of submissions and in a number of academic
works.

118. One
concern raised during consultations was that many practitioners
consider the Model Law to be incomplete. In particular, there
is a concern that provisions contained in State and Territory Acts
that provide courts with powers to support arbitrators are absent
from the Model Law. While it is
preferable to minimise the involvement of courts in arbitration
wherever possible, it is nonetheless desirable that parties are
able to seek support from a court where another party or person is
frustrating the arbitration proceedings.

119. In
addition to repealing current section 21, this item inserts a new
section 21 which provides simply that if the Model Law applies to
an arbitration, the law of a State or Territory relating to
arbitration does not apply to that arbitration. Consequently,
the arbitration law of a State or Territory will not operate with
respect to an international commercial arbitration but any State or
Territory laws applying to the substance of the dispute will
continue to have application. This item is complemented by
the amendments in Item 6, Item 7 and Item 24 which remove any role
for State and Territory law in enforcing and recognising foreign
arbitral awards under the New York Convention and awards under the
Convention on the Settlement of Investment Disputes Between States
and Nationals of Other States.

120.
Acknowledging concerns about the completeness of the Model Law,
Item 18 amends the Act to insert a range of additional tools that
the parties can use in resolving their dispute satisfactorily,
including allowing the courts to provide support to the
arbitration.

121. See also Item 6, Item 7, Item 18 and Item 24.

Item 16A Division 3 of Part
III

122.
Division 3 of Part III of the Act includes a range of optional
provisions that supplement the provisions of the Model Law.
These provisions address issues such as consolidation of
arbitration proceedings, interests and costs.

123. Item
16B amends the basis on which these provisions - and the
additional provisions to be included through the Bill - would
apply. Item 16A amends the heading to Division 3 of Part III
to better reflect the proposed approach.

124. See
also Item 16B

Item 16B Section
22

125. As
already noted, Division 3 of Part III of the Act includes a range
of optional provisions that supplement the provisions of the Model
Law. These provisions address issues such as the
consolidation of arbitration proceedings, interest and costs.
The Bill adds a number of additional provisions to Division 3
addressing issues such as court assistance to obtain evidence,
confidentiality and the consequences of a death of a party.

126. The
provisions of Division 3 apply on either an
‘opt-in’ or ‘opt-out’
basis. That is, some of these provisions only apply to the
arbitration if the parties expressly provide that they apply
(for example, consolidation of arbitral proceedings) whereas
others automatically apply to an arbitration but the parties can
choose to exclude them (for example, costs).

127.
Following detailed consultations with practitioners, the Bill will
adopt a different approach to how the optional provisions in
Division 3 of Part III apply. A number of these provisions
have been identified as fundamental tools that should be available
by default in any arbitral proceedings unless expressly excluded
- these provisions include those concerning court assistance
in taking evidence, interest and costs. Others, such as the
provisions concerning consolidation of arbitral proceedings and
confidentiality, are matters to which the parties should expressly
turn their minds before they apply.

128. Item
16B repeals section 22 of the Act and provides that the provisions
of Division 3 of Part III apply on the
following basis:

Section

Description

Opt-in/Opt-out

23

Parties may obtain subpoenas

Opt-out

23A

Failure to assist arbitral tribunal

Opt-out

23B

Default by party to an arbitration
agreement

Opt-out

23C

Disclosure of confidential
information

Opt-in

23D

Circumstances in which confidential information
may be disclosed

Opt-in

23E

Arbitral tribunal may allow disclosure in
certain circumstances

Opt-in

23F

Court may prohibit disclosure in certain
circumstances

Opt-in

23G

Court may allow disclosure in certain
circumstances

Opt-in

23H

Death of a party to an arbitration
agreement

Opt-out

23J

Evidence

Opt-out

23K

Security for costs

Opt-out

24

Consolidation of arbitral proceedings

Opt-in

25

Interest up to making of award

Opt-out

26

Interest on debt under award

Opt-out

27

Costs

Opt-out

129. This
approach reflects international practice which is particularly
important where parties to a dispute choose to arbitrate in
Australia as a ‘neutral’ venue. The parties
- and their lawyers - may not be familiar with the Act
and draft arbitration clauses on an assumption that the Act will be
similar to legislation overseas. Item 16B ensures that the
approach taken to Division 3 of Part III is in line with approaches
taken in most prominent arbitration jurisdictions such as Hong
Kong, Singapore and the United Kingdom.

132. As
already noted, Division 3 of Part III of the Act provides a suite
of optional provisions that are intended to support the parties to
resolve their dispute as effectively and fairly as possible.
These provisions deal with interim measures (section 23),
consolidation of arbitral proceedings (section 24), interest up to
making of award (section 25), interest on debt under award (section
26) and costs (section 27).

133. As
noted under Item 11, the 2006 amendments to the Model Law introduce
a more sophisticated regime for interim measures than previously
provided for in the Model Law. This regime now addresses
issues of enforcement which are also addressed in section 23.
Accordingly, section 23 is no longer required and this item repeals
the section.

134. In
addition to repealing current section 23 of the Act, this item
inserts new sections 23 to 23K. These new optional provisions
address assistance from the court, confidentiality, the death of a
party, evidence and security for costs.

135. As
noted under Item 16, one concern raised during the Review of the
Act was that many practitioners consider the Model Law to be
incomplete. In particular, there is a concern that provisions
contained in State and Territory Acts that provide courts with
powers to support arbitrators are absent from the model law.
These State and Territory provisions allow the parties to obtain a
subpoena from a court to require a person (a) to attend for
examination before an arbitrator, (b) to produce to the arbitrator
documents specified in the subpoena, and (c) to do both these
things. These provisions protect the normal privileges that
apply in legal proceedings. These provisions also provide
that a person who refuses to appear before, or produce documents
to, an arbitrator or fails to cooperate with an arbitrator may be
examined by, or required to produce the relevant document to, a
court.

136.
While it is preferable to minimise the involvement of courts in
arbitration wherever possible, it is nonetheless desirable that
parties are able to seek the courts support where another party or
person is frustrating the arbitration proceedings.
Accordingly, this item amends the Act to include provisions
equivalent to those in the State and Territory Commercial
Arbitration Acts.

137. The
Act will insert new section 23 which will allow a party to arbitral
proceedings commenced in reliance on an arbitration agreement to
apply to a court for a subpoena to require a person to (a) attend
before the arbitral tribunal for examination or (b) to produce to
the tribunal the documents specified in the subpoena.

138. This
provision includes four important safeguards. First, the
party may only approach the court with the permission of the
arbitral tribunal. This is intended to prevent a party from
using the process to draw out proceedings or compel attendance or
the production of documents where the tribunal does not feel it is
necessary for resolving the dispute. Secondly, the court may
only issue a subpoena ‘for the purposes of the arbitral
proceedings’ - this means the court must be satisfied
that the subpoena is genuinely being sought for the purposes of
resolving a dispute and not to support some secondary purpose.

139. The
third safeguard in new section 23 is that before issuing a subpoena
with respect to a person who is not a party to the dispute, the
court must not do so unless it is satisfied that it is reasonable
in all the circumstances. This provision is intended to
protect the rights of third parties - particularly against
the abuse of arbitral proceedings for some unrelated purpose such
as obtaining sensitive commercial information.

140.
Finally, new section 23 provides that a person must not be
compelled under the subpoena to answer any question or produce any
document which the person could not be compelled to answer or
produce in a proceeding before that court. This provision is
intended to protect privileges and immunities that would ordinarily
be enjoyed in court proceedings such as legal professional
privilege.

141. A
person who has been subpoenaed can challenge the issue of the
subpoena in the court from which it originated, and has the option
of being heard before a further order is made under new section
23A.

142.
Article 27 of the Model Law provides:

The arbitral tribunal or a party with the
approval of the arbitral tribunal may request from a competent
court of this State assistance in taking evidence. The court
may execute the request within its competence and according to its
rules on taking evidence.

143.
Subsection 23(6) clarifies that section 23 does not limit the other
types of assistance that may be available under Article 27 of the
Model Law. The provision is intended to preserve the broad
discretion of the courts in assisting with taking evidence and
allow for the courts to provide new types of assistance as they
emerge - subject to the rules of the individual court.

144. In
addition to the subpoena power, this item inserts a new section 23A
which allows a court to issue a range or orders where a person has
failed to cooperate with an arbitral tribunal or has not complied
with a subpoena issued under new subsection 23. Where this
has occurred, a court may order the person to attend before the
court for examination or to produce documents or order the person,
or any other person, to transmit a record of evidence given, or
documents produced to the arbitral tribunal.

145.
Section 23A will contain the same four safeguards that apply to new
section 23 with the exception that the consent of the arbitral
tribunal will not be required before a party can seek an order as a
result of a failure to comply with a subpoena. Subpoenas are
exempted from this requirement as the permission of the tribunal is
required before an application for a subpoena could be made under
section 23.

146.
Subsection 23A(6) clarifies that section 23A does not limit the
other types of assistance that may be available under Article 27 of
the Model Law for the same reasons as set out in paragraphs 143 and
144 above in relation to new section 23.

147.
Article 25 of the Model Law addresses the consequences of a failure
by a party to the arbitral proceedings to communicate a statement
of claim or a statement of defence or to appear at a hearing or
produce documentary evidence. In the latter case, Article
25(3) provides that ‘the arbitral tribunal may continue the
proceedings and make the award of the evidence before
it’. The Article applies unless otherwise agreed by the
parties.

148. New
section 23B of the Act sets out the consequences of failing to
comply with a subpoena, an order from the court or a requirement of
the arbitral tribunal. This provision supplements
Article 25 of the Model Law. In all cases, default by a
party allows the arbitral tribunal to continue with the arbitration
proceedings and make an award on the evidence before it. The
provision does not affect any other power which the tribunal or a
court may have in relation to the default.
For example, the
provision is not intended to affect the power of a court to punish
for contempt.

149. One
of the significant attractions of arbitration as a method of
resolving disputes is that it is much easier to control the
disclosure of confidential information as compared to
litigation. Proceedings generally occur in private and the
parties have a wide degree of control over how the proceedings are
conducted. This is of significant concern to parties where
sensitive commercial information is being considered.

150.
Article 25(4) of the UNCITRAL Arbitration Rules provides that
arbitration proceedings are to be held in private. This has
been interpreted differently in different countries. In
Australia, the High Court has held in Esso Australia Resources
Ltd v Plowman (1995) 183 CLR 10 that confidentiality is
not an essential feature of ‘private’
arbitration. ‘Private’ was interpreted to mean
that members of the public are not entitled to attend.
Further, the Court held that at common law, confidentiality
does not automatically attach to documents and information provided
in the course of an arbitration. However, where a party is
compelled to provide documents or information during an
arbitration, similar protections as apply to discovery before the
courts may be invoked with respect to the documents or
information.

151. The
parties are free to provide for greater confidentiality protections
through their arbitration agreement, which would then be
enforceable as terms of a contract. One way of doing this is to
adopt arbitration rules - such as those promulgated by the
Australian Centre for International Commercial Arbitration -
that address confidentiality.

152.
While the common law provides an appropriate level of
confidentiality for most circumstances, there will be some cases
where the parties have a legitimate interest in ensuring greater
level of protection for the information they put before a
tribunal.

153. This
item would insert a set of provisions that the parties may adopt
for the protection of confidential information. The
provisions have been adapted from similar provisions in the
Arbitration Act 1996 (NZ).

154. A
definition of confidential information is inserted in
subsection 15(1) by Item 11. This definition covers documents
associated with the proceedings such as statements of claim and
pleadings, evidence supplied to the tribunal, transcripts of
evidence, submissions and the tribunal’s award.

155. This
item inserts a new section 23C which provides that the parties to
arbitral proceedings and the arbitral tribunal must not disclose
confidential information in relation to the arbitral proceedings
unless:

(a) the
disclosure is allowed under section 23D

(b) the disclosure
is allowed under an order made by an arbitral tribunal under
section 23E and no order is in force under section 23F prohibiting
the disclosure, and

(c) the
disclosure is allowed under a court order made under section
23G.

156. Item
11 inserts an interpretation provision in section 15(1) of the Act
to clarify that disclose , in relation to confidential
information, ‘includes giving or communicating the
information in any way’.

157. New
section 23D sets out the general circumstances in which
confidential information can be disclosed by a party to the
proceedings or the arbitral tribunal. These circumstances
include where all the parties to the tribunal have consented, it is
necessary for the establishment or protection of the legal rights
of a party, disclosure is required by a subpoena or an order of a
court, or where disclosure is authorised or required by another
relevant law (including a law of the Commonwealth or a State or
Territory and, in some circumstances, the law of a foreign
country).

158.
Importantly, disclosure is authorised for the purposes of enforcing
an arbitral award. This is intended to include enforcing the
award in a foreign country.

159. New
section 23E allows an arbitral tribunal to authorise the disclosure
of confidential information in circumstances other than those
mentioned in section 23D. This can only occur at the request
of one of the parties to the proceedings and only once the other
parties have had the opportunity to be heard. Of course,
section 23D allows disclosure with the consent of all the
parties. Section 23G would deal with the situation where no
consent was forthcoming. Where the mandate of the arbitral
tribunal has been terminated or the tribunal rejects the
application, the party may apply to the court for an order allowing
disclosure under section 23G.

160.
Where an arbitral tribunal has made an order authorising the
disclosure of confidential information under section 23E, a party
to the proceedings may apply to a court for an order prohibiting
the disclosure. The court may make such an order if it is
satisfied that the ‘public interest in preserving the
confidentiality of arbitral proceedings’ outweighs
considerations that make the disclosure desirable in the public
interest or the disclosure is ‘more than is reasonable for
that purpose’. The court may make an interim order
preventing disclosure while it considers whether to grant a final
order on the matter.

161.
Where the mandate of the arbitration tribunal has been terminated
and, accordingly, it cannot make an order under section 23E or
where the tribunal has declined to make an order under that
provision, section 23G allows a party to the arbitral proceeding to
apply to a court for an order allowing disclosure of confidential
information. A court may authorise the disclosure if it is
satisfied that the ‘public interest in preserving the
confidentiality of arbitral proceedings’ is outweighed by
considerations that make the disclosure desirable in the public
interest and the disclosure is ‘no more than is reasonable
for that purpose’.

Death of a party to an arbitration agreement

162. This
item inserts a new subsection 23H into the Act which would address
the consequences of the death of a party to an arbitration
agreement. This is a matter on which both the Act and the
Model Law are silent. The effect of this provision is to
provide that the death of a party does not discharge the agreement
or revoke the authority of an arbitral tribunal and provides that
the arbitration agreement is enforceable against the personal
representative of the deceased. However,
the provision does not affect the operation of any law which would
extinguish a right of action as a result of the death of the
party.

163. The
amendments made by this item apply in relation to agreements
entered into on or after the commencement of the item (the day of
Royal Assent) - see Item 32. Item 32 also provides that
nothing would prevent the parties to an agreement entered into
before the commencement of this item from adopting these amendments
to the Act by way of subsequent agreement.

Evidence and security for
costs

164. By
repealing section 21 of the Act and inserting a ‘cover the
field’ provision (see Item 16) the Bill removes any recourse
the parties may have to the provisions of State and Territory
arbitration legislation concerning international commercial
arbitration. The Bill compensates for this by inserting
additional provisions into the Act that would provide for the
parties to obtain court assistance in the form of subpoenas and
other orders. These are the powers
contained in the State and Territory Acts that are most frequently
relied on by parties to ‘supplement’ the Act.

165. One
concern expressed by stakeholders has been that in removing
recourse to State and Territory laws parties will no longer be able
to access section 47 of the Commercial Arbitration Acts, which
provides:

General power of the Court to make
interlocutory orders

The Court shall have
the same power of making interlocutory orders for the purposes of
and in relation to proceedings as it has for the purposes of and in
relation to proceedings in the Court.

166.
Parties rely on this provision, in particular, to seek two kinds of
assistance from the courts that are not available through the
interim measures regime in the Model Law - (a) orders
for security for costs and (b) orders allowing for the inspection
or photographing of evidence or taking samples from, making
observations of, or conducting experiments on any evidence.

167. This
type of assistance is available in a number of foreign
jurisdictions, including: Mauritius and New Zealand (security of
costs only), as well as Hong Kong, Scotland and the United
Kingdom.

168. One
of the key conditions attached to the decision to provide that the
Act covers the field for the purposes of international commercial
arbitration was that parties would not be disadvantaged by no
longer having access to State and Territory arbitration laws.
It is well understood that the Model Law is not complete on its own
terms.

169. The
provision of security for costs protects parties that are the
subject of ill-considered actions while orders with respect to
evidence may be critical to ensuring a tribunal can make a decision
based on the most relevant and accurate facts.

170. This
item inserts new sections 23J and 23K into the Act.

171. New
section 23J deals with orders with respect to evidence. These
allow an arbitral tribunal to order various matters such as
allowing the tribunal or a person to inspect, photograph, observe
or conduct experiments on evidence in the possession of a party to
the proceedings and allowing the tribunal or a person to take a
sample of such evidence.

172. A
person other than the tribunal will only be specified under an
evidence order to conduct experiments etc if they are a party to a
proceeding, an expert appointed by the tribunal under
Article 26 of the Model Law, or, with the permission of the
tribunal, an expert appointed by a party.

173. New
section 23K allows for the tribunal to order that a party to the
arbitral proceedings pay security for costs. Security for
costs helps to protect parties from frivolous or vexatious actions
and is particularly important where the ability of a party taking a
matter to arbitration to pay for the costs of the other party is in
doubt. Whether security for costs is payable would be
entirely at the discretion of the tribunal.

174.
Subsection 23K(2) provides that the tribunal cannot make an order
for security for costs solely on the basis that the party is not
ordinarily resident in Australia, is incorporated under the law of
a foreign country or is a corporation or association whose central
management or control is exercised in a foreign country. This
is intended to protect foreign parties in arbitration from
discrimination, thus ensuring Australia is an attractive venue for
foreign businesses to resolve their disputes. This is similar
to the approach taken in Hong Kong, Singapore and the United
Kingdom.

175. It
is important to distinguish section 23K from Article 17E of the
Model Law which allows the tribunal to require a party requesting
an interim measure under Article 17 to provide appropriate security
with respect to that measure. Section 23K is of broader
application and applies to all aspects of the arbitration.

176. Both
sections 23J and 23K operate as interim measures under the Model
Law. In particular, this means that the provisions of the
Model Law relating to interim measures in Articles 17A and 17D
to 17J will apply to them. For example, they will be
enforceable under Article 17H just as any other interim measure and
will also be able to be granted by a court under Article 17J.

177. The
amendments made by this item apply in relation to agreements
entered into on or after the commencement of the item (the day of
Royal Assent) - see Item 32. Item 32 also provides that
nothing would prevent the parties to an agreement entered into
before the commencement of this item from adopting these amendments
to the Act by way of subsequent agreement.

179.
Section 22 of the Act provides that any or all of sections 23 to 27
apply only if the parties to an arbitration agreement have agreed
that they will apply to a dispute that has arisen or may arise
between them. In other words, section 22 provides that these
provisions apply on an ‘opt-in’ basis.
However, sections 25 to 27 are all prefaced with the words
‘unless the parties to an arbitration have (whether in the
agreement or in any other document in writing) otherwise
agreed’. This suggests that these sections apply
on an ‘opt-out’ basis in contradiction to section
22.

180. This
item amends subsection 25(1) by omitting the words ‘unless
the parties to an arbitration agreement have (whether in the
agreement or in any other document in writing) otherwise agreed,
where’ and substituting ‘Where’. This means
the application of the provision is now governed exclusively by
section 22 and applies on an ‘opt in’ basis.

182. The
amendment made by this item applies in relation to arbitration
agreements entered into on or after the commencement of the item
(the day of Royal Assent) - see Item 32. Item 32 also
provides that nothing would prevent the parties to an agreement
entered into before the commencement of this item from adopting
this amendment to the Act by way of subsequent agreement.

184.
Section 26 of the Act allows the arbitral tribunal to direct that
interest is payable on any amount payable under an arbitral award
that is not paid from the day the award is made (or another date
specified in the award).

185. This
item repeals section 26 and substitutes a redrafted
provision. While this provision is substantively similar
there are three significant changes. First, as with Item 19
and Item 21, the words ‘unless the parties to an arbitration
agreement have (whether in the agreement or in any other document
in writing) otherwise agreed’ have been omitted so that the
application of the provision is now governed exclusively by section
22 and applies on an ‘opt in’ basis. Secondly,
the provision now allows the tribunal to direct the payment of
compound interest. Thirdly, the provision has been
restructured in the interests of clarity.

186. The
amendment made by this item applies in relation to an award made on
or after the commencement of the item (the day of Royal Assent)
- see Item 32. Item 32 also provides that nothing would
prevent the parties to an agreement entered into before the
commencement of this item from adopting these amendments to the Act
by way of subsequent agreement.

188. This
item amends subsection 27(1) by omitting the words ‘unless
the parties to an arbitration agreement have (whether in the
agreement or in any other document in writing) otherwise agreed,
the’ and substituting ‘The’. This means the
application of the provision is now governed exclusively by section
22 and applies on an ‘opt in’ basis. The reasons
for the amendment are discussed at Item 19.

189. The
amendment made by this item applies in relation to arbitration
agreements entered into on or after the commencement of the item
(the day of Royal Assent) - see Item 32. Item 32 also
provides that nothing would prevent the parties to an agreement
entered into before the commencement of this item from adopting
this amendment to the Act by way of subsequent agreement.

191.
Controlling costs in arbitration proceedings is critical given that
one of the main reasons parties choose arbitration to resolve their
disputes is that it is less costly than litigation.

192.
Section 27 of the Act allows the arbitral tribunal to determine
costs at its discretion. Section
27(2) provides that in making an arbitral award, an arbitration
tribunal may:

(a) direct to
whom, by whom, and in what manner, the whole or any part of the
costs that it awards shall be paid;

(b) tax or settle the amount of costs to
be so paid or any part of those costs; and

(c) award costs to be taxed or settled
as between party and party or as between solicitor and
client.

193. This
item will insert a new paragraph in subsection 27(2) that will
allow an arbitration tribunal, in making an award, to ‘limit
the amount of costs that a party is to pay to a specified
amount’. Item 23 will insert a new subsection 27(2A)
that provides that if the tribunal intends to make a direction
limiting costs it must give the parties to the arbitration
agreement sufficient notice so that they can take it into account
in managing their own costs. The approach taken in these
items derives from section 65 of the Arbitration Act 1996
(UK).

194. The
amendments in Item 22 and Item 23 apply in relation to arbitration
agreements entered into on or after the commencement of these items
(the day of Royal Assent) - see Item 32. Item 32 also
provides that nothing would prevent the parties to an agreement
entered into before the commencement of this item or Item 22 from
adopting these amendments to the Act by way of subsequent
agreement.

197.
Section 28 of the Act provides a limited immunity provision for
arbitrators in the course of exercising their arbitral
functions. This item repeals this provision and inserts a new
immunity provision.

198. The
new provision differs from section 28 in two ways. First, it
is drafted in a more contemporary manner providing a broader
immunity coverage but limited by a ‘good faith’
requirement. This provides a more appropriate balance of
rights and interests as between arbitrators and parties.

201. This
item inserts a new section 30A addressing severability into
Division 4 of Part III of the Act. The new section sets out
the various constitutional heads of power upon which the Bill can
draw if its operation is expressly confined to acts or omissions
under those constitutional powers.

Amendments to Part IV of the Act

202. The
following items amend Part IV of the Act which gives effect to
Australia’s obligations under the Convention on the
Settlement of Investment Disputes between States and Nationals of
Other States done at Washington on 18 March 1965. The
Convention provides, amongst other things, for the recognition and
enforcement of awards made by the Arbitral Tribunal of the
International Centre for Settlement of Investment Disputes.

203.
Section 35 of the Act provides for the enforcement of awards made
under the Convention. Subsection 35(2) provides that an award
may be enforced in the Supreme Court of a State or Territory
‘as if the award had been made in that State or Territory in
accordance with the law of the State or Territory’. For
the same reasons as outlined at Item 5, which amends subsection
8(2) of the Act, this item amends subsection 35(2) of the Act to
provide that an award may be enforced by a State or Territory court
as if the award were a judgment or order of that court.

204. The
amendment made by this item applies in relation to proceedings to
enforce an award brought on or after the commencement of the item
(the day of Royal Assent) - see Item 33.

206.
Jurisdiction to enforce awards made by the Arbitral Tribunal of the
International Centre for Settlement of Investment Disputes was
conferred on the Federal Court of Australia by the Federal Justice
System Amendment (Efficiency Measures) Act which inserted
subsection 35(4) into the Act. To ensure consistent
phraseology with the amendments contained in Item 24, this item
will repeal section 35(4) and substitute a new provision to the
same effect.

207. The
amendment in this item applies in relation to proceedings to
enforce an award brought on or after the commencement of the item
- see Item 33.

208. See also Item 6, Item 24 and Item 33.

Item 26 After
Part IV

209. Item
26 inserts a new Part V (General Matters) into the Act that deals
with matters of interpretation and provides a new regulation making
power into Part V.

210. A
concern raised consistently during the Review of the Act was that
courts did not have sufficient guidance when interpreting the Act
- particularly with regard to the principles that underpin
arbitration and the international aspect of the operation of the
Act.

211. This
item inserts a new section 39 into the Act which addresses matters
to which courts must have regard when doing any of the following
things:

(a) exercising
a power or performing a function under the Act

(b) exercising a
power or performing a function under the Model Law

(c) exercising
a power or performing a function under an agreement or award to
which the Act applies

(d) interpreting the
Act or the Model Law, or

(e)
interpreting an agreement or award to which the Act applies.

212. In
doing any of these things a court must have regard to the objects
of the Act in section 2D (see Item 1). These objects stress
the importance of arbitration in facilitating international trade
and commerce and the fact that the Act is giving effect to three
international instruments. The court must also have regard to
the fact that: (a) arbitration is an efficient, impartial,
enforceable and timely method by which to resolve commercial
disputes and (b) awards are intended to provide certainty and
finality.

213. The
intention of this provision is to assist the courts in carrying out
the important protective role they play with respect to
international commercial arbitration while ensuring that this role
is minimised to what is necessary in the circumstances.

214. For
completeness, in interpreting the Model Law, courts must have
regard to Article 2A which was inserted by the 2006 amendments (see
Item 11). Article 2A(1) states that ‘in the
interpretation of this Law, regard is to be had to its
international origin and to the need to promote uniformity in its
application and the observance of good faith’.

215.
Ensuring that the Model Law is interpreted consistently with
approaches taken internationally is important in ensuring that
Australia is an attractive venue for the conduct of international
arbitration. Divergent interpretations undermine the purpose
behind the Law, which is to establish a common approach to
arbitration throughout the world and hence promote international
trade and commerce.

216. The
amendments made by this item apply to the exercise of a power, the
performance of a function, the interpretation of the Act, the
interpretation of the Model Law or the interpretation of an
agreement or award on or after the commencement of the item (the
day of Royal Assent) - see Item 34.

217. The
Act does not currently contain a regulation making power. New
section 18 allows the nomination of a court or other body to act as
an appointing authority for arbitrators under the Model Law.
Such a nomination is made by way of regulations. This item
inserts a regulation making power into the Act under new section
40, to facilitate regulations being made under new
section 18. The power is stated in general terms to
allow for future provisions that would require the making of
regulations.

219.
Schedule 2 to the Act sets out the Model Law. Currently,
schedule 2 sets out the Model Law in the form it was originally
adopted in 1985. This amendment repeals schedule 2 and
inserts a new schedule 2 which sets out the Model Law as amended on
7 July 2006. The new schedule reflects the amendments
discussed at Item 11.

220. See also Item 11.

Part
2 - Application

221. The
items in Part 2 of Schedule 1 set out the application for items in
Part 1. Substantive comments on the application of particular
items are addressed under each substantive item and not in this
part of the Memorandum.

229. This
item provides definitions for the use in this part of Schedule 1
providing that foreign award has the same meaning as in Part
II of the Act and Model Law has the same meaning as in Part
III of the Act.

[1]
UNCITRAL, Report of the United Nations
Commission on International Trade Law on the work of its
thirty-ninth session, 2006, (A/60/17), Annex II.